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Smucker (SJM) Sells Crisco Business to B&G Foods, Updates View

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The J. M. Smucker Company (SJM - Free Report) remains committed to optimizing portfolio through prudent buyouts, alliances and meaningful divestitures. To this end, the company concluded the divestiture of Crisco oils and shortening business to B&G Foods, Inc. (BGS - Free Report) for $550 million. Smucker also revised its guidance for fiscal 2021, to include the impact of the divestiture. Meanwhile, B&G Foods expects the buyout of Crisco oils and shortening business to immediately augment its bottom line and free cash flow.

Delving Deeper

Smucker’s divestiture includes the oils and shortening products, which are sold under the Crisco brand mainly in the United States and Canada; several trademarks and licensing deals; roughly 160 workers supporting the business as well as manufacturing and warehouse facilities situated in Cincinnati, OH. Notably, Crisco’s business generated net sales worth roughly $270 million in the fiscal year ended Apr 30, 2020. Its divestiture goes in tandem with Smucker’s previously unveiled intentions to exit the U.S. baking category and increase focus on key growth areas across the pet, snacking and coffee categories.  

Smucker updated its guidance for fiscal 2021, which reflects removed sales and adjusted earnings per share of the divested business for the remaining parts of the fiscal, amounting to nearly $100 million and 20 cents, respectively. Fiscal 2021 net sales growth is now anticipated to range from flat to an increase of 1%, while the bottom line is envisioned in a band of $8.35-$8.65 per share. On its last earnings call, management projected fiscal 2021 net sales growth of 1-2% and adjusted earnings per share of $8.55-$8.85. However, Smucker continues to envision free cash flow in the range of $975-$1,025 million for the fiscal.

Taking a look at B&G Foods, the company believes that, in 2021, the acquired business will keep gaining on the pandemic-induced demand. The acquired business is expected to generate annual net sales of roughly $270 million, adjusted EBITDA of $65-$70 million and adjusted earnings per share of 45-50 cents in 2021. The acquisition is likely to enhance B&G Foods’ brand portfolio and was funded with cash on hand as well as revolving loans under the company’s current credit facility. Prior to this, B&G Foods acquired Farmwise (in February 2020), while it also acquired and integrated retail baking powder maker, Clabber Girl (acquired in May 2019). Markedly, Farmwise made contributions of $0.4 million to B&G Foods’ third-quarter top line.

Wrapping Up

Certainly, the deal is likely to be beneficial to both Smucker and B&G Foods. Both companies have been gaining on increased at-home consumption amid the pandemic. This fueled Smucker’s retail business in the second quarter of fiscal 2021, wherein both top and bottom lines cruised past the Zacks Consensus Estimate and increased year over year. Results were backed by strength in the company’s U.S. Retail Coffee and U.S. Retail Consumer Foods segments, owing to increased at-home consumption amid the pandemic.

Both Smucker and B&G Foods carry a Zacks Rank #3 (Hold) each. Smucker has seen its shares rally 10.1% in the past year, while B&G Foods surged 65.5%. Meanwhile, the industry grew 3.5% in the same time frame.

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